Washington quietly gives Microsoft a tax increase

SEATTLE (AP) _ Washington state is quietly giving Microsoft a tax increase, and the company isn’t complaining about the $57 million tax hike over the next two years.

The state budget deal agreed to in Olympia this week included the closing of a number of tax breaks. This one was the repeal of a software machinery and equipment sales tax exemption, The Seattle Times reports (http://is.gd/z72q6D ).

The budget line doesn’t mention Microsoft by name, but it says the budget change only applies to a software company with more than 40,000 employees in Washington that has been in the around since at least 1981. Microsoft is the only company that fits that description.

Other companies can continue to claim the sales tax break, which exempts manufacturers and software-makers from paying sales tax on equipment they buy to help make their products.

Microsoft acknowledged the tax increase.

In an emailed statement, DeLee Shoemaker, Microsoft’s senior director of government affairs, confirmed the company expects to pay the higher tax amounts once the bill is signed by the governor.

Shoemaker did not say whether the company supported or opposed the tax shift _ but lawmakers would have been unlikely to impose the higher tax if the company had objected.

The $38.2 billion two-year operating budget agreed to by lawmakers was negotiated in part by two former Microsoft employees.

“We had a discussion with them about this, and they didn’t object to it,” said state Rep. Ross Hunter, D-Medina, the chief House budget negotiator, who worked for Microsoft for 17 years.

“When we looked at the tax exemptions, we were looking at ones that would do the least amount of economic damage. This was one that did not cause economic damage,” said Sen. Andy Hill, R-Redmond, also a former Microsoft manager.

While Microsoft executives have pushed the state to better fund its transportation and education systems, the company has at times been slammed by critics who point to its efforts to lower its tax burden _ including by shifting its software-licensing unit to Nevada in the 1990s.

In a March interview with The Seattle Times, Microsoft’s general counsel, Brad Smith, indicated some willingness for the company to pay more in state taxes. While not commenting on the sales-tax exemption, which had not yet publicly emerged, Smith said Microsoft was open to proposals to cap tax credits for research and development, for example.

“We’re comfortable getting less than we used to,” Smith said. He added, “Of course if our taxes are going up, we would really like the money spent well, which from our perspective would mean actually investing in education and transportation but doing it with a strong sense of accountability.”